Facebook Credits starting to make some real money

If Facebook were a country, it would be the third largest in the world, so it figures that the social networking giant is trying to develop its own currency - Facebook Credits.

Already, those credits can buy virtual goods from more than 200 applications on the Facebook platform, like special crop seeds or enhanced tractors in the otherwise free-to-play social game FarmVille.

But credits have moved into the physical world as well. Last week, Safeway Stores joined Target, Best Buy and Walmart in selling Facebook Credit gift cards, just in time for them to become a stocking stuffer for the onrushing holiday shopping season.

"We want Facebook Credits to be the virtual currency on Facebook," said product marketing manager Deborah Liu for the Palo Alto firm.

Analysts say Facebook Credits also have the potential to become a universal online currency that crosses both applications and country borders, not to mention a multibillion-dollar revenue source for Facebook, which takes a 30 percent cut of each transaction.

Credits, for example, could be the future currency used by publishers of digital content like news and video, said analyst Atul Bagga of the investment research firm Think Equity LLC.

For now, "Facebook is only taking baby steps," Bagga said. "But you can see that Facebook Credits can go far."

Positioned to win

Indeed, online payment systems are a key component of the main theme for the Web 2.0 Summit that begans today at the Palace Hotel in San Francisco.

The convention will focus on "a battle to gain the upper hand in crucial 'points of control' across the Internet Economy," entrepreneur and tech journalist John Battelle wrote earlier this year in a blog post setting up the theme for this year's conference.

And with more than 500 million active members, Facebook is already positioned to become a winner in that battle.

"As Facebook Credits increases in usage, Facebook will begin to look and feel like its own economy," said Augie Ray, a senior analyst at Forrester Research Inc.

The privately held Facebook isn't disclosing how many of its members now use Facebook Credits, which grew out of a Gift Shop feature that closed Aug. 1.

Earlier this month, Wedbush Securities projected Facebook will generate more than $1 billion in sales from virtual goods this year, and approach $2 billion next year.

Currently, there are more than 200 games and applications from 75 developers that accept Facebook Credits for those virtual goods, including 22 of the 25 most popular social games.

On Nov. 2, Facebook signed a five-year deal with Redwood City video game giant Electronic Arts to use Facebook Credits as its exclusive payment method for its social games, such as Pet Society, Restaurant City and FIFA Superstars.

That followed a similar deal earlier this year with San Francisco's Zynga Game Network Inc., maker of popular social games like FarmVille.

But there are non-game apps, such as Family Tree and Hallmark Social Calendar, that also accept Facebook Credits for virtual gifts such as digital birthday cards. And charitable organizations like Stand Up to Cancer and the anti-malaria Nothing But Nets have accepted Facebook Credits donations.

The payment system could become especially important since Facebook is also pushing its Connect program to directly bridge the social network's members with millions of other websites.

Making it easy

The system works in a way that's similar to real-world transactions such as using a BART transit card.

Facebook members use a regular credit card, PayPal account or mobile phone account to buy a certain value of Facebook Credits, starting with 15 credits for $1.50. Facebook Credits accepts payments using 15 currencies, including dollars, euros and yen.

Like BART cards, which deduct fares based on the distance of travel on the system, a Facebook Credits account is charged for the value of a virtual item that in real currency might cost only a few cents each.

It's the basic concept used by Apple Inc. to sell 99-cent songs on iTunes at a time when downloading songs for free was all the rage, said Alex Rampell, chief executive officer of TrialPay Inc.

"How did Apple get everybody to pay? They just made it very easy," said Rampell, whose Mountain View company offers an advertising system that entices social game players to try a real product like pizza or cosmetics in exchange for Facebook Credits.

Indeed, Facebook's Liu said the company sees a "sweet spot" for making a frictionless micro-payment system. The company is slowly expanding its list of developers who can "just plug into Facebook Credits" and not have to worry about creating their own payment system, she said.

Social gaming is just the first industry to be affected, "but we think a number of verticals will break through," Liu said.

Potential markets

Airline tickets or other big-ticket purchases may not be practical for Facebook Credits. But news site publishers, for example, could use Facebook Credits to get readers to buy access to an important story or a special video, Bagga said.

"And music is a very social phenomenon," he said. "There are so many industries that can have disruptions due to the social networking phenomenon."

Facebook, however, is based on the proposition that members make the network work by sharing their personal information, so it has also sparked numerous controversies over privacy. Facebook Credits might bring even more scrutiny.

"As Facebook becomes a bigger part of the user's shopping and purchasing activities as well as an even greater part of their communications activities, there's going to be a greater focus on the part of government as to what Facebook is doing," Ray said.